Warid Telecom on BID

FROM THE ECONOMIST INTELLIGENCE UNIT
Singtel, Vodafone and MTC are amongst potential bidders for a minority stake in Warid Telecom in the latest round of regional mobile sector consolidation.
Big is best continues to be the mantra driving the consolidation of the Middle East, Asia and African telecommunications market as Warid Telecom prepares to become the latest medium sized mobile network operator to link up with a larger international company. A minority share in the company, which operates mobile networks in Pakistan and Bangladesh, is set to be sold with potential bidders including Kuwait's Mobile Telecommunications Company (MTC), the UK giant Vodafone, and Singaporean operator Singtel.
The move comes following a decline in Warid's performance in its key Pakistani market in recent months, taking the gloss off its highly successful initial launch in 2005 in which it added over four million subscribers in the first year of operations alone. The company will shortly be relegated to fourth place by Telenor Pakistan if current trends persist, and it faces increasing competition from a revitalised Paktel, the fifth placed operator recently purchased by China Mobile after years of neglect in the hands of Millicom International Cellular.
Having renamed its new acquisition CM Pak, China Mobile immediately outlined a US$400 million network investment programme and a target of twenty million subscriptions, with the scale of its ambitions highlighting the limitations of Warid's position as the only significant Pakistani operator without a major international mobile operator as either full or part owner. Currently privately owned by the UAE based Abu Dhabi group, a holding company for the investments for Abu Dhabi's royal family, the addition of a foreign partner has the potential to arrest the company's slide through greater economies of scale in equipment and marketing costs, cheaper access to capital, and improvements in management.
Pakistani Mobile Market Summary
International Partner (% ownership)
Total Subscribers (million)
Total Subscribers (million)
Market share
April 07
Mobilink
Orascom (100%)
43.2%
Ufone
Etisalat (26%)
21.4%
Warid Telecom
Abu Dhabi Group (100%)
16.6%
Telenor Pakistan
Telenor (100%)
16.4%
CMPak (formerly Paktel)
China Mobile (88.9%)
1.7%
Overseas Aid
A major partner could also help Warid realise its international expansion plans, which saw it launch mobile services in Bangladesh in May 2007, and acquire licences to offer mobile services in Uganda and Congo (Brazzaville) last year. The company is coming late to each of these markets, as the sixth mobile operator in Bangladesh, the fifth in Uganda, and the fourth in Congo, with the inevitable consequence of higher initial infrastructure and marketing costs as the company seeks to compete with well entrenched incumbent operators.
Warid already appears to be having difficulty repeating the early success of its Pakistani launch in the crowded Bangladeshi market. A lukewarm consumer response has been reported by the local media, with higher than expected tariffs and distribution problems criticised, although the company itself reports taking on 150,000 subscriptions in the first week, which it claims is a record for the launch of a new mobile service in the country.
Having already laid out US$450 million in licence fees and infrastructure costs in Bangladesh, Warid is to invest a further US$300 million over the next three years in pursuit of its objective of reaching ten million subscribers in 2009. There is undoubtedly room for growth given the Bangladeshi market's relatively low penetration rate of under 20%, and with subscriptions set to double to around forty million over the next three years. Meanwhile its brand new 2.5G network will give it a substantial advantage over its competitors in terms of value added services and network quality. However, Warid's target requires it to capture around 50% of all new subscriptions and looks over ambitious in what is a highly competitive market, particularly given the company's failure to sustain its initially strong performance in the Pakistani market.
A Good Time to Sell
With little value to be found in further international expansion, the Abu Dhabi Group has chosen the right time to pursue the benefits of consolidation, particularly while its networks still offer potential for rapid growth, and with emerging market mobile telecom asset valuations sky high. Warid's operational presence in two large fast growing South Asian markets makes it an attractive investment proposition and it will have no shortage of potential suitors.
Vodafone appears a possible candidate having already gained a presence in the neighbouring Indian market with the acquisition of Essar earlier this year, but it may be put off by Warid's stated desire to maintain its brand identity and overall control. Meanwhile, SingTel's position is complicated by the fact that it is already active in the Bangladeshi mobile market with a 45% stake in Pacific Bangladesh Telecom Ltd (PBTL), the operator of the country's third largest network CityCell. However, if permitted by the regulatory authorities, a partnership would benefit both companies. Warid would receive a ready made Bangladeshi customer base of over 1.2 million, while SingTel would be able to migrate its customers from CityCell's current CDMA network to Warid's more up-to-date and cheaper GSM infrastructure.
Alternatively, a partnership with a fast growing Middle Eastern operator such as MTC would provide business and cultural synergies with Warid's Arab owners, and the Kuwaiti operator will be tempted by the prospect of gaining a foothold in the South Asian market. However, having recently paid over US$6 billion for the third Saudi mobile licence its ambitions may be spent for now.
A number of other Gulf state telecoms companies are also pursuing opportunities to expand in the region, although on a smaller scale. These include Qatar Telecom, which announced the acquisition of Pakistani WiMAX operator Burraq Telecom for US$12.3m last week, and Omantel, which announced that it is in negotiations to buy a similar Pakestani company, Worldcall, two day later. But the joker in the pack is the region's sleeping giant, the Saudi Telecom Company, which is yet to invest abroad. Its international ambitions were reaffirmed on May 23rd in a statement by company chief executive Saud Al Duweish committing the company to generate 10% of its revenues from abroad by 2010. A bid for Warid would be an impressive start.
SOURCE: INDUSTRY BRIEFING